Investment Analysis

Q3 2018: World’s housing markets poised to slow, but strong house price rises continue in Europe and parts of Asia

December 06, 2018

During the year to Q3 2018:

House prices rose in 25 out of the 45 world's housing markets which have so far published housing statistics. House prices fell in 20 countries.

The more upbeat nominal figures, more familiar to the public, showed house price rises in 38 countries, and declines in 7 countries.

However, more than half of the surveyed housing markets showed weaker momentum during the year to Q3 2018 compared to the previous year, suggesting that the boom may be moderating.

Most of Europe and Asia continue to experience strong price rises. There have also been notable positive turnarounds in Singapore, Mexico, Thailand, and Greece. But China, Sweden, Turkey and most of the Middle East have experienced either house price falls - or a sharp deceleration of house price rises.

Momentum. Only 19 of the world's housing markets for which figures are available showed stronger upward momentum during the year to Q3 2018, while 26 housing markets showed weaker momentum, according to Global Property Guide's research. Momentum is a measure of the "change in the change"; simply put, momentum has increased if a property market has risen faster this year than last (or fallen less). Momentum has weakened in just over half the housing markets covered in our survey.

Inflation-adjusted figures are used throughout this survey. In the case of Kiev, Ukraine, the Global Property Guide adjusts using the official U.S. inflation rate since Ukrainian secondary market dwelling sales are denominated in U.S. dollars.

The strongest performing markets:

Malta is now the strongest housing market in our global survey, with residential property prices rising by 12.86% during the year to Q3 2018, after y-o-y rises of 14.51% in Q2 2018, 12.09% in Q1 2018, 7.37% in Q4 2017 and 10.15% in Q3 2017, using inflation-adjusted figures. During the latest quarter, property prices rose by 0.9% q-o-q. Malta's economy is expected to expand by a robust 5.7% this year and by another 4.6% in 2019.

All figures that follow are inflation-adjusted.

Hong Kong's residential property prices surged 11.11% during the year to Q3 2018, after y-o-y rises of 13.64% in Q2 2018, 12.28% in Q1 2018, 12.78% in Q4 2017, and 13.41% in Q3 2017. However on a quarterly basis, house prices fell by 1.14% during the latest quarter. The boom continues despite stamp duties being raised for all non-first time homebuyers (November 2016) and allowable loans on residential and commercial properties being cut in May 2017. In June 2018, Chief Executive Carrie Lam revealed another series of cooling measures, including a tax on vacant flats.

The Netherlands' housing market continues to perform very well, with the average purchase price of all dwellings rising by 8.45% during the year to Q3 2018, at par with the previous year's 8.23% growth. On a quarterly basis, house prices were up 0.42% during the latest quarter. The strong house price rises were mainly attributed to robust demand, coupled with lack of adequate housing supply in the market. The Dutch economy grew by 3.2% in 2017, the highest growth since 2007.

Singapore's housing market made a surprise comeback, after four years of house price falls, thanks to strong demand and a healthy economy. House prices rose by 7.93% during the year to Q3 2018, a sharp turnaround from a y-o-y decline of 0.52% in Q3 2017. Quarter-on-quarter, house prices increased 0.17% during the latest quarter. The economy is expected to expand by 2.9% this year and another 2.5% in 2019.

With Ireland's economy growing by 7.3% last year, it is not surprising that the housing market remains very strong. Residential property prices increased 7.21% during the year to Q3 2018, after y-o-y rises of 11.46% in Q2 2018, 12.4% in Q1 2018, 11.68% in Q4 2017, and 11.74% in Q3 2017. During the latest quarter, Irish house prices increased 1.6%. Ireland's surging house prices are mainly driven by strong demand as well as supply shortages.

THE REGIONS:

Europe remains vibrant

European house price rises continue unabated. House prices have risen in no less than 14 of the 24 European housing markets for which figures were available during the year to Q3 2018.

Malta's housing market is growing at breakneck speed, buoyed by its very strong economy, coupled with the introduction of the Individual Investor Programme (IIP) and stamp duty exemption for first-time buyers. Residential property prices rose by 12.86% during the year to Q3 2018, after y-o-y rises of 14.51% in Q2 2018, 12.09% in Q1 2018, 7.37% in Q4 2017 and 10.15% in Q3 2017. During the latest quarter, property prices rose by 0.9% q-o-q. Malta's economy is expected to expand by a robust 5.7% this year and by another 4.6% in 2019, according to the IMF.

The Netherlands' housing market remains strong, mainly due to robust demand, coupled with lack of adequate housing supply in the market. The average purchase price of all dwellings rose by 8.45% during the year to Q3 2018, at par with the previous year's 8.23% growth. On a quarterly basis, house prices were up 0.42% during the latest quarter. During 2017, home sales surged 13% from a year ago. However in the first three quarters of 2018, home sales dropped 7.8% from a year earlier to 161,956 units, mainly due to worsening supply shortages. The Dutch economy grew by 3.2% in 2017, the highest growth since 2007. GDP is expected to grow by another 2.8% this year and by 2.6% in 2019, according to the IMF.

Ireland's economy grew by 7.2% last year. It is not surprising that the housing market continues to perform very well. Residential property prices increased 7.21% during the year to Q3 2018, after y-o-y rises of 11.46% in Q2 2018, 12.4% in Q1 2018, 11.68% in Q4 2017, and 11.74% in Q3 2017. During the latest quarter, Irish house prices increased 1.6%. Ireland's surging house prices are mainly driven by strong demand as well as supply shortages. The economy is projected to expand by a spectacular 7.8% this year, according to the European Commission.

Other strong European housing markets included Germany, with house prices rising by 5.15% during the year to Q3 2018, Portugal (4.7%), Athens, Greece (2.71%), Spain (2.39%), Iceland (2.2%), and Jersey (2.09%). All, except Jersey, recorded positive quarterly growth during the latest quarter. In terms of momentum, all, except Germany and Iceland, had stronger performances in Q3 2018 compared to a year earlier.

Minimal annual house price rises during the year to Q3 2018 were registered in Riga, Latvia (1.64%), Slovak Republic (1.23%), Lithuania (0.71%), Macedonia (0.37%), and Russia (0.18%). Only Latvia and Lithuania saw quarterly growth during the latest quarter. All, except Latvia and Slovak Republic, performed better in Q3 2018 compared to the previous year.

Europe's weakest housing markets

Turkey's housing market continues to weaken, amidst a weak currency (the lira), record-high inflation, and political conflict with the US. Nationwide residential property prices fell by 11.27% during the year to Q3 2018, far worse than the previous year's 0.03% decline. On a quarterly basis, house prices dropped 6.64% during the latest quarter.

In October 2018, inflation rose to 25.24%, the highest level in 15 years. The Turkish lira plunged to record lows, having shed almost 40% of its value against the US dollar during the past year. The government recently cut its 2018 GDP growth forecast to 3.8% from an earlier estimate of 5.5%.

Ukraine's housing market remains depressed, despite improved economic conditions. Secondary market apartment prices in Kiev fell by 6.27% (inflation-adjusted) during the year to Q3 2018, to an average price of US$ 1,065 per square metre (sq. m.) – compared to a y-o-y decline last year of 6.81% in Q3 2017. House prices fell by 0.88% q-o-q in Q3 2018.

House prices in Ukraine have been falling during the past five years, particularly in 2014 (with prices plunging 37.38%) because ofthe devaluation of the hryvnia due to the Russian war. Ukraine's economy is expected to expand by 3.5% this year, after expansions of 2.5% in 2017 and 2.4% in 2016, and contractions of 9.8% in 2015, 6.6% in 2014 and 0.03% in 2013, according to the IMF.

Sweden's house price boom is over, amidst falling demand and supply. The nationwide house price index fell by 3.46% during the year to Q3 2018, in sharp contrast with the y-o-y rise of 5.73% the previous year. It was the biggest annual drop since Q2 2012. Quarter-on-quarter, house prices fell by 0.11% during the latest quarter. Homes sold in one- to two-dwelling buildings fell by 5.2% y-o-y during the first three quarters of 2018. Likewise, dwelling starts in newly constructed buildings fell by 16% over the same period. The Swedish economy is projected to expand by 2.4% this year, after annual growth rates of 2.1% in 2017, 2.7% in 2016, 4.5% in 2015 and 2.6% in 2014.

Other weak European housing markets included Switzerland, with house prices falling by 2.61% during the year to Q3 2018, Montenegro (-1.21%), Estonia (-0.77%), UK (-0.49%), Finland (-0.35%), Norway (-0.32%), and Romania (-0.13%). Only Montenegro, Romania and Switzerland saw quarterly growth during the latest quarter. All showed weaker performance in Q3 2018 as compared to the previous year.

The Asia-Pacific region is growing stronger

Two of the five strongest housing markets in our global survey are in Asia-Pacific - Hong Kong and Singapore - with house prices rising in 8 of the 11 housing markets for which figures were available during the year to Q3 2018.

Hong Kong's housing market continues to boom, with residential property prices surging 11.11% during the year to Q3 2018, after y-o-y rises of 13.64% in Q2 2018, 12.28% in Q1 2018, 12.78% in Q4 2017, and 13.41% in Q3 2017. However on a quarterly basis, house prices fell by 1.14% during the latest quarter.

The latest house price rises come despite the government raising stamp duties for all non-first time homebuyers starting November 2016 and cutting allowable loans on residential and commercial properties in May 2017. In June 2018, Chief Executive Carrie Lam revealed another series of cooling measures, including a tax against vacant flats. In the first nine months of 2018, the total number of property transactions in Hong Kong increased 6.7% from a year earlier while sales values rose by 15.2%, according to the Ratings and Valuation Department (RVD). After economic growth of 3.8% last year, the highest growth since 2011, the government recently revised its 2018 growth forecast down to 3.2% from 3.4%, amid concerns over the impact of the trade war.

Singapore's house price rises continue to accelerate, buoyed by strong demand. House prices rose by 7.93% during the year to Q3 2018, a sharp turnaround from a y-o-y decline of 0.52% in Q3 2017. Quarter-on-quarter, house prices increased 0.17% during the latest quarter. The economy is expected to expand by 2.9% this year and another 2.5% in 2019.

The Philippines is now in its seventh year of house price boom, amidst strong economic growth. The average price of 3-bedroom condominium units in Makati CBD rose by 5.75% during the year to Q3 2018, after y-o-y rises of 4.6% in Q2 2018, 5.66% in Q1 2018, 7.34% in Q4 2017 and 6.94% in Q3 2017. Housing prices increased 1.45% during the latest quarter. The Philippine economy is expected to expand by 6.5% this year, at par with the average annual growth rate of 6.6% from 2012 to 2017.

Other strong Asian housing markets included Macau, with house prices rising by 5.49% during the year to Q3 2018, Thailand (5.13%), and New Zealand (3.93%). Only Thailand recorded positive quarterly growth during the latest quarter. In terms of momentum, both Thailand and New Zealand had stronger performances in Q3 2018 compared to a year earlier.

Very minimal annual house price rises during the year to Q3 2018 were registered in Tokyo, Japan (0.22%) and Indonesia (0.08%). Both countries saw quarterly decline during the latest quarter. Only Indonesia performed better in Q3 2018 compared to the previous year.

Some Asian nations remain weak

China's housing market is cooling rapidly, with new regulatory and monetary policies impacting developers and speculative buyers. In Shanghai, the price index of second-hand houses fell by 4.49% during the year to Q3 2018 – worse than the previous year's 0.31% y-o-y decline. During the latest quarter, house prices in Shanghai fell by 1.46%.

The Chinese economy grew by 6.5% y-o-y in Q3 2018, down from the previous quarter's 6.7% growth and the weakest expansion since Q1 2009, amidst its ongoing trade war with the US. China's economy is projected to expand by 6.6% this year, after expanding 6.9% in 2017 and 6.7% in 2016. China has achieved 27 straight years of above 6% growth.

South Korea's housing market is fragile, with the nationwide housing purchase price index falling by 0.72% during the year to Q3 2018, from a y-o-y decline of 0.66% a year earlier. House prices fell 1.03% q-o-q during the latest quarter.

Taiwan's housing market is still weak. Nationwide house prices fell by 0.15% during the year to Q3 2018, compared to a decline of 0.25% y-o-y in Q3 2017. Quarter-on-quarter, house prices fell by 1% during the latest quarter.

Middle East's housing markets continue to struggle

TheMiddle Eastis now in the doldrums, with two of the three weakest housing markets in our global house price survey in the region: Egypt and UAE. This is not surprising given the region's ailing economy due to low oil prices and the ongoing political and diplomatic crisis. The Middle East's economy grew by just 1.1% in 2017, the weakest growth for eight years.

Egypt is now the weakest housing market in our global survey, after strong performances in the previous two quarters. The nationwide real estate index plunged 20.91% during the year to Q3 2018, after y-o-y rises of 4.51% in Q2 2018 and 11.45% in Q1 2018 and annual declines of 11.49% in Q4 2017 and 8.68% in Q3 2017. House prices dropped 18.53% q-o-q during the latest quarter.

President Abdel Fattah el-Sisi recently removed the last restrictions on foreign ownership of land and property in Egypt, in an effort to buoy the housing market. He also allowed the government, the biggest landowner in Egypt, to use its land for public-private partnership schemes. The economy is expected to grow strongly by 5.3% this year, the fastest pace in a decade, according to the IMF.

Other Middle Eastern housing markets are also depressed. In Dubai, residential property prices fell by 8.73% during the year to Q3 2018, worse than last year's 2.84% decline, amidst weak economic growth, low investor sentiment, and an oversupply of housing. During the latest quarter, house prices in Dubai dropped 2.15% q-o-q.

Likewise, Qatar's housing market continues to struggle, amidst a sharp economic slowdown and the adverse impact of the diplomatic crisis. The nationwide real estate price index dropped 3.67% during the year to Q3 2018, after last year's 3.47% y-o-y decline. However, property prices rose by 5.25% q-o-q during the latest quarter.

Israel's decade-long house price boom is now over, with government cooling measures intensifying. The nationwide average price of owner-occupied dwellings dropped 2.89% during the year to Q2 2018, a sharp turnaround from the previous year's 4.84% growth. In fact, it was the biggest y-o-y decline since Q2 2007. Israeli house prices dropped 0.03% q-o-q in Q3 2018.

The Americas are mixed

U.S. house prices continue to rise, albeit at a slower pace. Canada's almost decade–long housing boom is finally over. In Latin America, Chile is strengthening while Mexico has rebounded strongly. Brazil, on the other hand, continues to struggle.

After five years of strong house price growth, the U.S. housing market is now gradually cooling. The S&P/Case-Shiller seasonally-adjusted national home price index rose by 3.16% during the year to Q3 2018 (inflation-adjusted) – the lowest growth in four years. House prices increased 0.53% during the latest quarter. The Federal Housing Finance Agency's seasonally-adjusted purchase-only U.S. house price index also increased 3.61% y-o-y in Q3 2018 (inflation-adjusted), down from annual rises of 3.97% in Q2 2018, 5.01% in Q1 2018, 4.63% in Q4 2017 and 4.64% in Q3 2017. The FHFA index rose by 0.93% q-o-q during the latest quarter.

Demand and construction activity are now falling. In October 2018, sales of new single-family houses fell by 12% from a year earlier while existing home sales were down by 5.1%. Building permits authorized for new housing units dropped 6% in October 2018 from the previous year. Likewise, new housing starts fell by 2.9% y-o-y in October 2018, while completions were down 6.5%. In November 2018, US homebuilder sentiment plunged to its lowest level since August 2016, amidst rising mortgage rates. Earlier, the IMF raised its 2018 growth forecast for the world's largest economy from 2.3% to 2.7% and finally to 2.9%, an acceleration from the expansions of 2.2% in 2017 and 1.6% in 2016. This was after President Donald Trump signed a landmark tax law (known as the Tax Cuts and Jobs Act or TCJA) considered to be the largest overhaul of the U.S. tax code in over 30 years.

House prices in Canada's eleven major cities dropped slightly by 0.08% during the year to Q3 2018, in sharp contrast from last year's 9.46% growth. In fact, it was the first annual decline since Q3 2009. Quarter-on-quarter, house prices increased 1% in Q3 2018. Demand is falling. In October 2018, actual sales activity dropped 3.7% from a year earlier, after falling by 4% in 2017.

The Canadian Real Estate Association (CREA) expects home sales to fall by 9.8% this year, amidst the introduction of another set of market-cooling measures, against a backdrop of rising mortgage interest rates. The Bank of Canada (BoC) raised its key rate by 25 basis points to 1.75% in October 2018, after raising it four times since July 2017. The Canadian economy grew by a healthy 3% in 2017, the highest growth since 2011. The economy is expected to expand by 2.1% this year and by another 2% in 2019, according to the IMF.

Mexico's housing market has rebounded strongly, with the nationwide house price index rising by 4.75% during the year to Q3 2018, in contrast to a y-o-y drop of 1.42% in Q3 2017. However on a quarterly basis, house prices dropped 0.99% during the latest quarter.

Chile's housing market continues to grow stronger, despite the introduction of a property sales tax in 2016. The average price of new apartments in Greater Santiago rose by 4.29% during the year to Q3 2018, up from the previous year's 3.43% y-o-y expansion. Quarter-on-quarter, house prices rose by 2.64% in Q3 2018.

Brazil's housing market continues to struggle, despite improving economic conditions. In Sao Paulo, house prices fell by 2.52% during the year to Q3 2018, from annual declines of 2.38% in Q2 2018, 1.11% in Q1 2018, 1.5% in Q4 2017 and 1.13% in Q3 2017. On a quarterly basis, house prices in Sao Paulo fell by 0.35% in Q3 2018.

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